I am a UK-based financial writer and oil & gas sector analyst with over 15 years of experience in the financial and trade press. I have worked on all major media platforms – print, newswire, web and broadcast. At various points in my career, I have been an OPEC, Bank of England and UK Office for National Statistics correspondent. Over the years, I have provided wide ranging oil & gas sector commentary, including pricing, supply scenarios, E&P infrastructure, corporations' financials and exploration data. I am a lively commentator on ‘crude’ matters for publications and broadcasting outlets including CNBC Europe, BBC Radio, Asian and Middle Eastern networks, via my own website and now Forbes. My oil market commentary has a partial supply-side bias based on a belief that the risk premium is often given gratuitous, somewhat convenient, prominence by cheeky souls who handle quite a few paper barrels but have probably never been to a tanker terminal or the receiving end of a pipeline. Yet having done both, I pragmatically accept paper barrels [or should we say ‘e-barrels’] are not going anywhere, anytime soon!

Natural Gas Abundance Won't Mitigate Regional Pricing Disparities

Discussions about the abundance of natural gas often contain enthusiastic references to unconventional gas exploration and production (E&P). Shale gas, tight gas, coal-bed methane and gas hydrate – we’ve heard about them all. While the rising contribution of unconventional gas E&P to the global supply pool is undisputed, it ought to be remembered that conventional production is not dead yet – not least in the US – the global champion of unconventional.

In 2011, when the International Energy Agency (IEA) loudly queried if we were entering a golden age of gas, its take on abundance was pragmatic enough to factor in all what was around. Furthermore, in wake of the Fukushima nuclear disaster, the IEA correctly touted natural gas as a low carbon medium term alternative for power generation.

Proven natural gas reserves at the end of 2013 stood at 185.7 trillion cubic meters (tcm), sufficient to meet over 55 years of global production, according to BP’s latest research. Agreed, that an increase in US unconventional reserves of 7.1% accounted for all of the net growth in global proved reserves last year. However, Iran (33.8 tcm) and Russia (31.3 tcm) hold the largest proven conventional reserves. Using a different measuring bracket, OPEC members hold just shy of 50 tcm.

These exporting jurisdictions, while no longer dismissive of unconventional, were at pains to flag up conventional at the recently concluded 21st World Petroleum Congress (WPC) in Moscow. Russia, not only insisted that its major companies such as GazpromGazprom bang the drum about conventional, but also ensured that its regions with potential such as Sakhalin made individual sales pitches to the world.

As a supply-side analyst, I feel of some of the chatter is missing the point. The discussion shouldn’t center on table thumping and who has abundance of what. That creates a false sense of security as gas markets have and will continue to display regional pricing disparities. Since, the Henry Hub is not docking next to Singapore anytime soon, I agree with Melody Meyer, President of Asia Pacific E&P at ChevronChevron, who told the WPC that regionalized markets are not going away any time soon.

“Global trade of LNG would only rise to 14% by 2025. It’s at 10% at the moment. Compare and contrast this with the oil market where two-thirds of the trade has a global dimension,” she added.

It’s precisely why IEA chief economist Fatih Birol has persistently called for the shale gas boom to be “viewed in proportion.” The thoughts echoed in my conversation with International Gas Union Secretary General Torstein Indrebø. Most in Moscow also found the idea of a ‘Natural Gas OPEC’ laughable, more so as the disconnection between oil and gas prices has never been greater.

Local factors, geopolitical and location constraints will continue to have a bearing. Take the latest Russo-Chinese gas supply pact. Most believe Russia made pricing compromises in wake of Ukraine, even though financial details were never revealed. However, Tatyana Mitrova, Head of Oil and Gas Department at the Russian Energy Research Institute, opined that the deal was perhaps the only way for Russia to monetize and bring dormant gas assets to the market.

Politics aside, the Russians are not alone in working out closed door pricing agreements with importers. Qatar, another major gas exporter, has inked differing contracts contingent upon negotiations with importers over the years. Furthermore, if the supply-side dynamic has changed should unconventional and conventional be clubbed, so will the demand-side, as former IEA Executive Director Nobuo Tanaka pointed out.

Currently with the Institute of Energy Economics in Japan, former IEA man who hasn’t lost his touch one bit, asked, “Should the golden age of gas carry a question mark? If the big game changer is shale gas on the supply side, is China a game changer on the demand side? How much will they buy and how – via pipeline from Russia or as LNG?”

Japan, India and South Korea are also among those making the demands. In fact, most market observers see the demand for natural gas doubling by 2025. Some say it’d be a lot sooner than that if transport vehicles start using gas more meaningfully as a fuel base. Abundance would still see the demand being met, but it won’t be met at a standard price. And that is what we should be chatting about.

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